Pension fund rapped for ignoring ‘Treating Customers Fairly’ rule

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Phoenix Durban

Muvhango Lukhaimane, Pension Funds Adjudicator.

Members of pension funds must be kept appropriately informed before, during and after entering into contracts, the Pension Funds Adjudicator has warned.
Muvhango Lukhaimane said the National Treasury had introduced principles of Treating Customers Fairly (TCF) to guide the relationship between the financial industry and consumers.
“TCF requires entities to measure themselves as to whether or not in doing their business they are dealing fairly with the consumer by, inter alia, providing them with sufficient and clear information that will enable them to make informed choices when acquiring financial products,” she said in a recent determination.
Ms Lukhaimane said the Municipal Employees Pension Fund (first respondent) had not acted in keeping with the spirit of the TCF in a matter that came before her for adjudication.
The complainant, CJ Modiba, was unhappy with the quantum of the withdrawal benefit paid to him following his exit from service at the Greater Sekhukhune District Municipality (second respondent).
The complainant was employed with the second respondent from October 1, 2007 to February 29, 2016.
Following his exit from service, the complainant was paid a net withdrawal benefit of R276 150.64.
The complainant stated that he initially contributed to the Government Employees Pension Fund (GEPF) for 26 years and nine months before his fund value of R800, 000 was transferred to the first respondent.
He averred that he contributed to the first respondent for nine years before he resigned from the second respondent.
He indicated that his gross resignation benefit amounted to R478, 000 and a net amount of R276, 000 was paid to him.

The first respondent said the complainant had a transfer value from GEPF in the amount of R860 527.64 which was received by the fund on August 31, 2013.
The transfer value bought 17 years and three months of service for the complainant and at the time of his resignation, the complainant had 20 years and three months total service in the fund.
The first respondent further submitted that the complainant had a total gross resignation benefit of R468 259.57.
An amount of R106 319.63 was deducted in respect of a loan and income tax in the amount of R79 786.72 was also deducted and paid to the South African Revenue Services.
A further amount of R5 902.58 was deducted in respect of arrear tax and a net benefit of R276 150.64 was paid to the complainant.
The first respondent provided an actuarial computation for the purchase of the complainant’s past service and a computation of the withdrawal benefit paid which reflects the complainant’s pensionable service and final pensionable salary.
Ms Lukhaimane agreed with the first respondent’s explanation for the reduced amount that was paid to the complainant.
However, she was critical that the first respondent had failed to inform the complainant that the transfer value was used to purchase the additional pensionable service from the GEPF.
“This issue should have been disclosed to the complainant when he joined the first respondent so that he understands that at the point of exit it won’t simply be added to his withdrawal benefit,” she said.
Lukhaimane added, “This result has been ruinous to say the least, in the complainant’s case. The first respondent has a duty to provide the complainant with relevant information relating to his benefits. Further, the first respondent contravened the principles of Treating Customers Fairly By failing to disclose relevant information that affect a member’s fund value.”
“However, the first respondent subsequently explained the pensionable service purchased with the transfer value and provided a computation thereof,” said Ms Lukhaimane and dismissed the complaint.

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